ARTICLE | February 18th, 2025

The Inflation Reduction Act (IRA) made several changes to the tax credits for individuals for clean energy purchases starting in 2023. Purchases that can qualify for a tax credit include energy efficient home improvements, solar panels, and qualified energy efficient vehicles. For more information about which clean energy credit may apply to you, contact your Larson Gross professional.

Home Improvements

If you make energy efficient improvements to your home, you may be able to claim up to $3,200 of tax credits each year! Expenses that qualify include exterior doors, win- dows, skylights and insulation materials, central air condi- tioners, water heaters, furnaces, boilers and heat pumps, biomass stove and boilers and home energy audits.

How much is the credit?

Credit generally = 30% of expenditures up to an annual maximum of $1,200

A separate annual credit of up to $2,000 is also available for:

• Qualifying electric and natural gas heat pumps
• Electrical or natural gas heat pump water heater
• Qualifying biomass stove

TIP: Stagger your qualified energy efficient purchases in different tax years to maximize the use of this credit.

Primary residences: all qualified items

Secondary residences: all qualified property is eligible except building envelope items such as: energy audit, doors, windows, skylights, and insulation 

• There is no high-income phaseout and the credit is non- refundable
• Carryover is available if there is no tax
• This credit applies to US-based property

Solar Panels

The Inflation Reduction Act increased the credit percentage for clean energy improvements, including solar panels and battery storage.

• Credit generally = 30% of expenditures including sales tax and labor less any utility rebates
• Credit is nonrefundable, but excess can be carried over for future years
• Must be installed at US-based residence
• Solar panel credit apples to principal and 2nd, 3rd, 4th, etc. residences. Rental properties do NOT qualify, but MAY qualify for the business investment credit
• Other eligible property includes:
  • Certified Solar water heater
  • Geothermal heat pump (uses ground or ground water)
  • Battery storage technology (at least 3 kWh capacity)
    Example: You pay $10,000 to have a solar system installed on your US primary residence. Duringyour tax return filing for the year purchased, the tax credit would be 30% of the $10,000 cost equaling a $3,000 credit to offset your taxes

WA State Solar Incentives

Washington Renewable Energy Sales Tax Exemption

• WA exempts 100% of the sales tax on solar energy systems that generate up to 100 kilowatts
• Larger systems up to 500 kilowatts can qualify for a 50% exemption
• Exemption applies to both equipment and installation costs
• To qualify, you must apply for a sales tax refund through the WA Dept of Revenue

How to claim the credit? Collect all Solar costs, including contractor labor costs, and energy storage devices and provide to your Larson Gross contact

Electric Vehicles

Starting in 2023, the Inflation Reduction Act changed the rules for purchases of electric vehicles (EVs). Under the modified rules, new vehicles may be eligible for up to a $7,500 credit if they meet certain requirements:

Domestic Content and Manufacturing

• Manufacturers are required to certify that they meet battery and critical minerals tests. The IRS has published a list of eligible EVs and a new vehicle tax credit checklist here
• Manufacturer’s Suggested Retail Price. There are limitations based on the total manufacturer’s suggested retail price. New trucks, vans, and SUV models must have an MSRP less than $80,000. Other
  new cars, like coupes and sedans, must be less than $55,000. Note: the MSRP is not necessarily the price you paid
• Income thresholds to claim the credit. Your income must be at or below certain thresholds in either the year you claim the credit or the year immediately before.
  • The thresholds are:
    • $150,000 for single filers with no dependents
    • $225,000 for single filers with dependents (also known as “head of households”)
    • $300,000 for married couples. You cannot claim any credit if your income exceeds the limit
•  How is the credit determined?
  • $3,750 if the vehicle meets a critical minerals re- quirement only
  • $3,750 if the vehicle meets the battery requirement only
  • $7,500 if the vehicle meets both requirements

TIP: Make sure to understand what the credit will be with your dealer and calculate an estimate of your expected income for the current year before purchasing the vehicle. Also, consider leasing the vehicle if it does not meet all the requirements for the full credit or your income is too high. Car dealers can claim a credit on EVs they lease under different rules. They are not subject to the domestic content and manufacturing limits. Many dealers are passing along some or all of this benefit to their customers.

There is a new 1098-type report required starting in 2023 that manufacturers must file in order
for you to receive the credit

TIP: Make sure to request a copy of this report from the dealership so it’s available for your tax
return preparation

For used vehicles:

• The used vehicle must be less than $25,000 and the maximum credit is $4,000
• Has to be first transfer of the vehicle after August 16, 2022
• Income limitations are lower than new vehicles, at $75,000 for single filers and $150,000 for married filing jointly

Electric Vehicle Chargers & Charging Equipment

• For home EV Charging stations, there is a tax credit available that is equal to 30% of the costs of hardware and installation up to $1,000
• The EV charger tax credit for business and home installations also applies to other EV charger equipment such as bidirectional (two way) chargers.

WA State Electric Vehicle Instant Rebates

Starting in August 2024, the Washington EV Instant Re- bate Program will provide rebates ranging from $2,500 to $9,000 at the time of purchase or lease.

• Customer Eligibility: To qualify, your income must be at or below 300% of the federal poverty level (equivalent to $93,600 for a family of 4)
• Vehicle Eligibility: Only fully electric vehicles with an MSRP of $90,000 or less
• Seller Eligibility: automakers that sell directly to consumers, franchise car dealers, and used car dealers with two or more WA locations or that only sell EVs